Coping with Higher Gas Prices

Spring is just around the corner. That means baseball, the end of the school year…and higher gas prices?

Yes, unfortunately the winter thaw generally means higher prices at the pump. Increased demand for fuel because of heavier traffic in mild weather is part of the problem, as are the increased production costs of summer-grade fuels which gas stations must have in their tanks by June 1.

But 2012 might bring more dramatic price spikes than usual. According to the Energy Information Administration, gas prices have already jumped an average of 39 cents per gallon since December, and crude oil continues to trade above the $100 a barrel mark. Continuing tensions in the Middle East and the possibility that Iran will continue to cut off oil to Europe are likely to keep prices high. Increased demand for gasoline as the economy gradually improves will also be a factor. (But then, if prices go too high, the recovery could be slowed.) Bottom line: Analysts say prices near $5 a gallon are a very real possibility later this year.

But whatever the causes and however high prices ultimately move, growing businesses are especially vulnerable. It’s not just companies that directly delivery products that are impacted. Everything you order or ship and every sales or service call you make is going to cost more. So what to do?

Ultimately, like many business decisions, coping with higher fuel costs involves efforts to raise revenues and reduce expenses – in this case, expenses related to fuel costs. But be proactive.Have your plans in place before prices surge.

Here are some possibilities to discuss with your team:

Be Transparent. Discuss the matter with key accounts. Consider a separate charge for deliveries, shipping, or otherwise moving products, materials or personnel to a client site. If the charge is clearly attributed to higher gas prices, your customers will probably understand. They might even be considering similar actions with their customers.

Raise Prices. Depending on how critical your services are to a customer and how long it’s been since your last increase, you could consider raising prices at least enough to maintain margins.

Reduce Shipping Expenses. Conduct an evaluation of your shipping, packaging and delivery methods. Can lighter-weight, appropriate sized containers reduce costs? Are shipments combined whenever practical?

Drive Smarter. Analyze regular and new routes to make sure they’re cost-effective. Off-the-shelf software packages can assist in planning better routes, and can estimate fuel costs.

Lighten Up. The heavier your load, the more fuel you burn. Clear out unneeded tools, samples, catalogs and other extras from your car’s trunk.

Maintain Company Vehicles. This will sound like your dad talking, but make sure you have the oil and filters changed on schedule. Don’t forget tune-ups, proper tire pressure and wheel alignment.

Use a “Cheap Gas” Locator. When driving for your business, or using a company vehicle be sure to go online to find the best prices. Gas Buddy and MapQuest Gas Prices are continually updated.

Consider Pre-paying for Fuel. A pre-paid fuel service allows you to pay for gas at current prices and take delivery later, when prices are higher. Most services require you to pay the current price at the filling station, but you are refunded the difference between your pre-paid rate and the pump price. Check MyGallons.com for more information.

MP Star Financial’s invoice factoring services can make your company’s cash flow more predictable, allowing you time to run your business and grow your company. Call MP Star Financial for more information at (800) 833-3765, extension 150.

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